(Reuters) - Central banks turned net buyers of gold last year and cut exposure to debt issued by euro zone members Greece, Ireland and Portugal, an annual survey of the world's reserve managers showed.

A quarter of managers polled said they had upped their exposure to 'non-traditional' reserve currencies such as the Australian and Canadian dollars in the last two years and a majority said debt issued by the euro zone rescue fund, the EFSF, had the makings of a sound reserve asset.

"Traditionally, government bonds have been termed 'risk-free' assets but the euro zone situation has made some of us change our understanding of that," said one of the 39 reserve managers that responded to the poll conducted by Central Banking Publications over the winter of 2010-2011.

Concerns over sovereign default fueled demand for gold, turning central banks into net buyers in 2010 after 20 continuous years of selling the metal.

"Gold's quality as a store of value and fears over reserve currencies are the main reasons that central banks turned net buyers of bullion in 2010," wrote survey author Nick Carver.

The survey's respondents, who manage central bank reserves worth $3.5 trillion in total or 35 percent of total world reserves, identified gold as a "safe" reserve asset at a time when rising sovereign debt levels and super-loose monetary policy from the world's major central banks sapped confidence in more traditional reserve currencies.

"Both the euro zone and the U.S. are confronted by large deficits with simultaneously modest growth, which has influenced the value of their currencies and raised questions about debt sustainability," said one respondent.

Gold, investment grade corporate bonds and AAA-rated bonds were the three assets that reserve managers saw as more attractive than the year before.

Over 70 percent of the managers surveyed said central banks were likely to remain net buyers of gold given the level of uncertainty about sovereign debt.

CREDIBLE ALTERNATIVES

The survey also found 69 percent of respondents had not changed their reserve management strategies as a result of the Federal Reserve's expansion of its bond purchase program.

Instead, the second round of quantitative easing had prompted a tactical reaction with some central banks shortening the duration of the U.S. debt they held.

U.S. Treasuries remained the safest liquid asset "in the absence of a credible alternative", said a reserve manager from the Middle East.

There was, however, growing interest among reserve managers in non-traditional reserve currencies.

Over a 20 percent of respondents said they held more than 5 percent of their reserves in currencies such as the Australian dollar, the Swedish crown and the Singapore dollar.

A European reserve manager said shifts to these currencies had come at the expense of further euro allocation.

Diversification into these currencies, however, remained constrained by their lack of liquidity.

Several reserve managers highlighted the Chinese yuan as an attractive alternative reserve currency but acknowledged that its share in foreign-currency reserves remained constrained by poor liquidity as well as investment hurdles.

Some 81 percent of those surveyed viewed the new bonds issued by the European Financial Stability Facility (EFSF) as attractive reserve assets.

Two of the respondents said they were considering investing in the AAA-rated bonds issued by the Facility, set up last May as a temporary rescue fund for weaker euro zone economies.

Though the credit quality of the EFSF assets was acknowledged, reserve managers were unsure about the secondary market liquidity of the bonds.

Some also predicted that the instruments could compete with debt issued by embattled euro zone economies.